Goldman Sachs Downgraded Coinbase’s Stock to “Sell” , Share Price Fell 10%

06/28/2022By: C, Fiona

Goldman Sachs this morning downgraded the rating of Coinbase stock from “neutral” to “sell”. The company’s shares have fallen 10% since the market opened.

In a research report to investors, the bank’s analysts led by Will Nance downgraded the company’s stock rating after weeks of market volatility and turmoil. The team revised the target price to US $45, lower than US $70 earlier this year. The reason is that “the price of cryptocurrency continues to decline” and the activity level of the whole industry has decreased significantly. When Goldman Sachs launched the price report, Coinbase’s price per share was $220.

“We believe that the current cryptocurrency asset level and transaction volume mean that Coinbase’s revenue base is further degraded. We believe that the revenue in 2022 will decline by ~61% year-on-year and ~73% in the second half of the year,” the report said.

Coinbase has fallen by 77% this year, and the price of tracking Bitcoin has fallen by 55% in 2022.

Prior to the downgrade, Moody’s last week downgraded Coinbase’s Corporate Family Rating (CFR) (a long-term rating reflecting the possibility of corporate debt default) from Ba2 to ba3, and its secured senior unsecured notes from BA1 to Ba2. Both ratings mark “junk” or non investment status, and ba3 is the lowest rating, indicating “significant” risk.

Preparing for a Bear Market

Both re ratings were carried out after Coinbase’s massive layoffs because it was preparing for a bear market. In the past month, Coinbase canceled job opportunities and issued a recruitment freeze order, and then laid off about 18% of its employees, a total of 1100 employees. Brian Armstrong, chief executive officer of Coinbase, admitted in his message to employees after layoffs that the company had over hired employees.

However, analysts at Goldman Sachs say these measures are not enough. The report added that in order to survive, Coinbase would need to significantly cut its cost base to “prevent the resulting cash flow” as retail trading activity slowed down. With the market entering what many people call the new “crypto winter”, Goldman Sachs analysts believe that Coinbase is facing the choice of shareholder dilution and reducing “effective employee compensation”, which may have a negative impact on talent retention.

Nevertheless, analysts appreciated Coinbase’s decision on Wednesday to merge Coinbase and Coinbase Pro into one platform. Nance said that the merger “may reduce the conversion cost and make it easier for its users to obtain lower prices”.

Among the Wall Street giants, Goldman Sachs is not the only one to lower its expectations for coin because of the current economic downturn. J.P. Morgan also revised its rating on Coinbase earlier this month, and lowered the stock from “overweight” to “neutral” a few hours before the company announced layoffs. Redburn Partners , a financial brokerage firm, joined the ranks of investment banks on Thursday and downgraded Coinbase’s rating from “buy” to “neutral”.

Oppenheimer, an investment bank, and JMP securities, headquartered in San Francisco, reiterated their “outperformance” rating earlier this month, but lowered the target price of Coinbase in early May.